Faced with ever rising costs, both in operations and employment, Vietnam seems to be the consensus pick for winner of the US-China trade war, as Chinese and other manufacturers shift production to the cheaper South-East Asian nation. If there is any nation that is losing out, it would be South Asian countries.
To understand why, remember that the trade war has only accelerated an important trend a decade in the making. Chinese manufacturers are faced with a difficult decision amid the rising costs of the US-China trade war. They must decide whether to invest in worker-saving automation or to relocate their facilities altogether.
It goes without saying that the companies that choose the latter present an enormous opportunity for less-developed nations, as these businesses can help accelerate industrialisation and much-needed economic stimulation in their new country of operation.
The only proven pathway to long-lasting, broad-based prosperity has been to build a manufacturing sector linked to global value chains, which raises productivity levels and creates knock-on jobs across the whole economy. This was the method by which the majority of wealthy nations, not to mention China itself, managed to claw themselves out of poverty and prosper.
Yet the evidence suggests that South Asian countries are lagging behind in attracting manufacturing investment. It’s not just Vietnam that’s racing ahead. African countries, too, are making manufacturing a top priority.
The World Bank has lauded sub-Saharan Africa as the region with the highest number of reforms each year since 2012.
By contrast, in terms of foreign direct investment as a percentage of GDP, South Asia lags both the global average for least-developed countries and sub-Saharan Africa.
While South Asia’s total GDP is more than 70 per cent greater than Africa’s, the continent received three-and-a-half times the investment from China that South Asia received in 2012, the most recent year for which the United Nations has published bilateral FDI statistics.
In order to keep up, South Asian nations need to undertake a thorough, whole-of-government push to boost investment levels. Speed is key in this digital, on-demand age; and a lack of agility means risking losing opportunities to industrialise to other countries.